When it comes to financial investments, some people seem to possess an almost mystical ability to turn everything they touch into gold. Warren Buffett and Jeff Bezos are undoubtedly considered as being among these financial wizards. Their investment moves are closely watched, prompting the question: What sets them apart?
These titans are not just known for their prowess in the stock market; they’ve also strategically diversified their portfolios with a significant emphasis on real estate. But contrary to popular belief, there’s no magic or elusive Midas Touch involved. Instead, it’s all about savvy money know-how. Let’s unravel strategic real estate investments and explore the intelligent tactics behind their success.
Real Estate Investments are the Way to Go
Warren Buffett, Jeff Bezos, and many others have all recognized the inherent benefits of real estate investments, leveraging this asset class to recoup massive benefits over the years.
When asked about real estate investments, Buffet put it this way: “They’re the businesses that you buy once, and then you don’t have to keep making capital investments subsequently. So, you do not face the problem of continuous reinvestment involving greater and greater dollars because of inflation. That’s one reason, in general, real estate is good during inflation.”
Moreover, recently, numerous global investment giants have introduced fresh funds strategically geared towards acquiring or constructing single-family homes for rental purposes. This development is hardly surprising given the escalating costs of homeownership that have nudged many Americans towards the tenant lifestyle.
A notable entrant into this arena is Arrived, a dynamic real estate company with backing from none other than Jeff Bezos, the visionary founder of Amazon. Breaking into the single-family rental fund space, Arrived has been making waves with its innovative fractional real estate investing platform.
Both Bezos, Buffet, and many others are clearly strong proponents of real estate investing. Why is real estate such a wise investment?
The Real Estate Advantage: A Brief Overview
1. Investment is Secured
Real estate investments are like financial anchors, grounded in tangible assets. Their intrinsic value and limited liquidity make them resilient against market panics. Unlike more volatile investments, real estate’s stability is a reliable shield during economic uncertainties, providing investors with a tangible and enduring foundation.
2. Invest for Cash Flow
Multi-unit rental properties, like apartment buildings, present a stable income stream and diversified investment compared to other real estate assets. The consistent demand for rental housing ensures a reliable source of income, while the multiple units contribute to a more resilient and varied investment portfolio. This stability and diversity make multi-unit rentals attractive for investors seeking financial security and strategic asset allocation.
3. Passive Income
Building wealth means earning money even while you’re asleep. Cash-flowing assets generating consistent passive income play a vital role in this wealth-building strategy. The key lies in strategically incorporating such income-generating elements into one’s portfolio for sustained financial growth.
“If you don’t find a way to make money while you sleep, you will work until you die.”
–Warren Buffett
4. Return on Equity
Equity creation, often termed “forced equity,” involves boosting the value of multi-family assets (5 units or more) through increased revenue or reduced expenses. This proactive approach allows investors to actively enhance the asset’s worth, contributing to a more lucrative and appreciating investment.
5. Tax-Free Harvesting
Cash flow can find shelter in depreciation, offering investors an annual expense deduction on paper without the actual expenditure. This tactical strategy entails writing off a percentage of the property’s value against revenues, providing a unique advantage in managing taxable income. By leveraging depreciation, investors can optimize their cash flow while maintaining the property’s financial health, making it a smart move.
6. Profit from Inflation
Unlike many other investments, real estate not only avoids losses due to inflation but can actually profit from it. Smart investors strategically use leverage and hedging, similar to banks engaging in arbitrage, to outpace inflation.
Inflation typically makes people poorer, contributing to the widening wealth gap. Educated investors like Buffett and Bezos thrive by choosing investments that consistently outperform inflation. They play the long game, strategically using leverage to borrow from banks at fixed rates and investing in cash-flowing assets.
The success of financial giants in real estate is not a result of luck or a mythical Midas Touch. Aspiring investors can take a cue from these titans by incorporating these strategies into their own portfolios for long-term financial success. It is best not to attempt to navigate the complex world of investing alone, however. Contact us at Cornerstone Commercial Investments and find out how you can grow your portfolio through savvy real estate investments. Visit our website at Cornerstone Commercial Investments for more information.